Why the Real Gold Boom Is Poised to Start - Right Now

Plus, the Four Best Ways to Profit When Metals Soar

by Michael Checkan, Wealth Protection Panelist

Since January of 2001, gold is up over 58%, rising from $268 to $424 per ounce. Silver is up more than 64%, from $4.58 to $7.55. Platinum is up over 45%, rising from $608 to $884.

Yes, the impact of the Twin Deficits (U.S. foreign trade and budget), geopolitical unrest, lower interest rates, higher crude oil prices, and a lackluster economy is evident in the rise in precious metals prices in U.S. dollar terms.

However, to date, precious metals prices have not risen as dramatically versus the other major currencies. We believe this is about to change.

What we have experienced over the past few years is a mini bull market in precious metals, characterized by a strengthening primarily versus the U.S. dollar. In our opinion, this is simply the first stage of a larger, overall bullish trend for precious metals.

Here's why: The fundamental supply-and-demand pressures on precious metals going forward are of a global nature.

How Crude Oil Affects Precious Metals Prices

Higher crude oil prices will not just affect the U.S. dollar. Folks drive cars in Europe and Asia, as well. These economies will not be immune to the higher costs of all products that ultimately find their way to market via a gasoline-powered vehicle.

The slippery-slope analysis here is this: Higher costs for gasoline are passed on to the consumer as higher prices for goods and services. This is what we call price inflation. When inflation appears, investors took for ways to insulate their portfolios against it. Precious metals, and gold specifically, have a proven track record as an excellent inflation hedge. Therefore, higher crude oil prices lead to higher demand for precious metals... an upward pressure on precious metals prices.

Lackluster Economies Add to Gold's Luster

Lackluster economies litter the globe. The U.S. is not unique here. Investors worldwide are concerned about their prospects - and many of the ones I talk to are looking for alternatives to the traditional investment strategies.

Gold fits the bill, which is why demand is rising for good gold investments (and investments in other metals, too). As previously mentioned, increased demand leads to higher prices.

The World Gold Council recently released supply-and-demand statistics for the first quarter of 2005. Demand for gold in the first three months of 2005 is up 32%, year-on-year. According to the Silver Institute (www.silverinstitute.org), statistics for 2004 show that a boom in investor activity was largely responsible for a 36% rise in the silver price to 17-year highs.

Five Mega-Forces About to Drive Metals Higher

Additionally, there are myriad other global pressures that will most certainly do their part to push precious metals prices higher in the coming major bull market.

• We have seen a significant drop in Central Bank sales of precious metals. This, combined with a continued decrease in producer forward selling, means there is more pressure on the mines to produce to a level that can satisfy the growing demand.
   
• The lifting of the Japanese Bank Deposit Guarantee will trigger increased demand for precious metals just as it did in the beginning of 2002. Basically, banks are in trouble in Japan, and the government is removing the safety net that protected Japanese deposit holders. Money will be placed into precious metals in large quantities as a result.
   
• The opening of freely traded precious metals markets in China and India through deregulation will most certainly bolster demand. As the middle classes emerge, they will most certainly take advantage of the option only recently available to them: to own precious metals.
   
• The advent of Exchange-Traded Funds for precious metals has, in effect, made them more accessible to the average investor. More access to the precious metals markets will lead to more demand for precious metals.
   
• Lastly, geopolitical unrest will do its part to push precious metals prices higher, as well.

The good news for precious metals investors is that these pressures are almost exclusively geared toward increasing demand and reducing supply.

How to Take Advantage of the "Major Bull Market"

So, what should you do? How do you take advantage of this opportunity as it unfolds?

We believe the answer lies in a mixture of gold and silver, with a weighting toward silver. Although we see limited and equal downside risk to both gold and silver, the upside potential looks a bit more enticing for silver. Consider the following:

• If the gold price doubled from current levels, it would be at all-time highs of $850 per ounce. However, if the silver price doubled from current levels, it would only be at one-third of all-time highs of $50 per ounce.
   
• Silver production has not been able to keep pace with demand now for 16 straight years. The result is a dwindling of aboveground supplies to alarmingly low levels.
   
• Since silver is largely produced as a by-product of other mining operations, you can't just flip a switch and increase production. Silver is inelastic in this regard.
   
• Large Central Bank supplies of silver do not exist as they do in the case of gold. The threat of large, market-moving silver sales does not loom over the silver market.

Bottom-line, this is a case of good news and more good news. If you already benefited from the rise in precious metals prices, congratulations. If you have not participated as of yet due to skepticism, timing or other obstacles to action, do not fret. The major metals bull market is just now heating up.

The Four Best Ways to Buy Precious Metals

• Physical Metals- Purchase precious metals in bar or coin form from a trusted source, and have them ship it to you. You can store metals in a safe at home or in a safe deposit box at the bank.
• Certificates- Buy your physical precious metals from a trusted dealer, but have a reliable third party store them for you. You receive a certificate that shows title to the precious metals held on your behalf.
• Futures and Options- Buy contracts through a licensed commodities broker. This is a leveraged approach to buying precious metals.
• Mining Securities- Buy shares in corporations that are in the business of exploration and mining precious metals. This is a sector play, but it should not be confused with portfolio allocations of physical precious metals.

Wealth Protection Panelist Michael Checkan is President of Asset Strategies International, Inc. (www.assetstrategies.com). based in Rockville. MD, working in the areas of precious metals, foreign currencies and overseas wealth protection. For more information, contact Michael at 800.831.0007 or 301.881.8600. Or e-mail him at assetsi@assetstrategies.com.

This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are solely those of the author(s) subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a particular precious metals product or service. The risk of loss in commodity markets can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of Asset Strategies International or The Zurich Club is strictly prohibited.

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